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Financial Tips for Our New Economy

Financial uncertainty is vexing us all during this time of COVID. We turned to Saugatuck Financial, a full service financial advisory firm (conveniently located across the street from JR’s, which we wrote about in this issue), for advice on how we can keep our finances healthy in our current reality.

1. Don’t sell based on emotion or fear. While market volatility often impacts emotions, the COVID-19 situation carries with it an unprecedented variety of non-market related stressors including: social distancing, working from home, home-schooling of kids, concerns over job security and/or income, concerns about our health being at risk, etc. However, as has been the case with the dozen bear markets we’ve had since 1926, the economy will eventually recover and the market will eventually attain new highs. The real question is around timing.

2. Actively rebalance your portfolio. As market volatility increases, a disciplined approach to trimming portfolio holdings that have performed well to add to positions that have been harder hit, allows investors to benefit by “buying low and selling high.”

3. Look for tax-loss harvesting opportunities. Strategically selling depressed positions allows investors to realize losses that can be used to offset gains and up to $3,000/yr of ordinary income. And unused losses can be carried forward indefinitely. A key element to this strategy is not losing exposure to the asset class you’re selling out of, which would put you at risk of missing a bounce back. Typically one would move into a similar investment that is different enough to meet IRS requirements and the 30 day wash-sale rules.

4. Avoid selling into market lows to raise cash. Investors who rely on their portfolios for living expenses should ensure they have adequate cash reserves to meet liquidity needs without being forced to sell during a market decline. Some alternatives to cash include having a low interest HELOC and/or life insurance cash value that can be used to meet short-term liquidity needs until invested assets recover.

5. Focus on the opportunities. For investors with cash on the sidelines, market volatility presents an opportunity to invest. While investors should not try to time the market (as no one knows where or when the bottom will be) we view the current bear market as a buying opportunity for investors with longer-term time horizons.

6. Ensure your asset allocation fits your long-term financial goals. If your allocation is not reflective of your risk tolerance or time horizon, it is a great time to speak with an advisor who can help you strategically rebalance to a more appropriate allocation.  

7. If you have a long-term financial plan that fits, stick to the plan. If you don’t, you may want to speak with a reputable financial advisor who can help you create one.

8. Make sure you are covered from a risk perspective. Is the life, disability and long term care insurance you have in place adequate to cover the loss of income that could result from a death or disability? A reputable financial advisor can help you stress test these scenarios and ensure that the planning you have in place will protect you and your loved ones in the event of the unexpected.

This article is not intended as, and financial representatives do not give, legal or tax advice.  The opinions expressed are those of Saugatuck Financial as of the date stated on this article and are subject to change. There is no guarantee that any forecasts made will come to pass. All investments carry some level of risk, including the potential loss of principal invested. No investment strategy can guarantee a profit or protect against loss. Saugatuck Financial is a marketing name for Justin Charise and Alfred Schor and is not a broker-dealer, registered investment advisor federal savings bank, subsidiary or other corporate affiliate of The Northwestern Mutual Life Insurance Company, including its subsidiaries, nor is it a legal partnership or entity. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, Wis. (NM), and its subsidiaries. Charise and Schor are representatives of Northwestern Mutual Wealth Management Company®, NMWMC Milwaukee, Wis., a subsidiary of NM and limited purpose federal savings bank, and registered representatives of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, registered investment advisor, broker-dealer, and member, FINRA and SIPC. 

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